Keystone XL Tests U.S.-Canada Energy Ties as Asian Suitors Loom

Published: September 13, 2011

CALGARY, Alberta -- When Russ Girling describes the past three years of waiting for American regulators to approve his company's massive oil pipeline bid as "a strain on everybody," he means more than just fiscal or logistical stress.

"It's a strain on our company," the CEO of TransCanada Corp., sponsor of the $7 billion Keystone XL project, told Greenwire in a recent interview at his firm's headquarters. "It's a strain on our relationship with the U.S."

As the turbulent debate over the XL line chugs toward its delayed finale, with a final ruling from the Obama administration expected by 2012, its consequences for U.S.-Canada ties are a potent but delicate subplot to the drama. Canada exports more barrels of petroleum product to America daily than Mexico and Saudi Arabia combined, an economic rank that the nation's boosters eagerly emphasize -- even as environmentalists blast the Great White North as a great green letdown.

Against that backdrop, the fate of Keystone XL could have as sweeping an impact on Canada's image in the United States as it does on Girling's company and others aiming for a prolonged renaissance in developing the Albertan oil sands.

Canadians in the oil industry and government are often heard delivering a subtle but unmistakable message to their American friends: If you don't welcome the fuel that this pipeline would deliver, we will find someone else who does.

"You're not going to become a global superpower of anything with one customer," Alberta Energy Minister Ron Liepert said of the Canada-U.S. relationship in a recent interview.

Liepert takes pride in the potential of his bitumen-rich province to bestow energy-superpower status on Canada.

Addressing what he termed the "lack of recognition of the [U.S.] jobs created" by Canadian energy, the former public relations consultant was blunt about the next steps his nation would take if its "so intertwined" southern neighbor does not accept the 700,000-plus crude barrels that the XL link is set to carry each day.

"There is a limited mechanism to get oil off the West Coast today, but I can tell you that's a priority for this country," Liepert said, referring to a proposed pipeline that would ship oil-sands fuel to the coast of British Columbia and on to Asian markets.

The threat embedded within that prospect -- of China benefiting from Canada's oil reserves before America does -- is frequently cited by Republicans in Congress who already have passed a bill prodding the White House to sign off on Keystone XL within weeks (E&E Daily, May 26).

But green activists fighting the XL pipeline call it an empty threat, pointing to opposition from aboriginal communities that is "tying the [western route] up in knots," in the words of 350.org co-founder Bill McKibben.

"Canadians are in danger, we think, of making a parody of their victimization," added McKibben, who called the homeland of oil sands "one of the Earth's more irresponsible nations" in a June New Republic article titled "Blame Canada."

McKibben, a veteran climate change activist who organized a protest of the XL project that ended this month with more than 1,200 arrests, cited Brazil's move to stop Amazon deforestation as an example of a country with a fraction of Canada's per capita income finding the upside of keeping its natural bounty locked in place.

"Easy wealth is probably doing more damage to the Canadian identity than adding to its luster," he said.

'Dissonance' meets economic reality

In Alberta, where more new jobs were reported in the month of June than the entire United States, few seem to share the view of oil sands wealth as a bad thing.

Surveys have found average alcohol consumption in the province higher than in Canada as a whole, and oil companies are working to stem an uptick in traffic accidents caused by the influx of temporary workers at production camps. Still, the rosy local picture of Albertan bitumen is on full display in the oil sands capital of Fort McMurray, where a "discovery center" sells toy mining trucks for families and offers a history of provincial energy development tinged with filmic adventure.

The oil sands, which carry an estimated 170 billion barrels of fuel extractable under current methods and billions more out of technological reach, have been part of the "Alberta identity for quite some time," TransCanada CEO Girling explained, "but I don't think the true potential of it was understood across the country until recently.

"That obviously captures people's attention not just in North America, but in Asia and Europe," he added, subtly reinforcing the Canadian desire to open its energy stores for customers beyond the continent. That drive is bearing financial fruit for Canadian energy companies that have partnered on multibillion-dollar oil sands deals with Chinese, Korean and Thai firms in recent months.

The impetus to keep up with Asian rivals is not the only factor putting pressure on American officials to take a positive view of Keystone XL despite projections that oil sands development would effectively cancel out any progress Canada makes in coming years on meeting international emissions-reduction targets (Greenwire, Aug. 8).

Energy Secretary Steven Chu recently linked the pipeline to the future health of the U.S.-Canada bond in an interview set to air later this month.

"It's certainly true that having Canada as a supplier for our oil is much more comforting than to have other countries supply our oil," Chu told the TV program "energyNOW!" as he touted the ability of Canadian industry to bring down the oil sands' ecological footprint in coming years.

The government of Canadian Prime Minister Stephen Harper has sounded similar notes all year long, stating in January: "The reality is that Canada is a very ethical society and a very secure source of energy for the United States, compared to other sources."

Environmentalists such as McKibben counter that such "ethical oil" arguments amount to greenwashing. But for some green advocates in Canada, the politically charged assessment of oil sands impacts that Keystone XL has triggered could bring much-needed candor to their nation's reputation in the United States.

"The perception in America that Canada is green is not necessarily an opinion that's been gained from actions -- it's based on the inheritance Canada has in terms of space, its wealth of natural resources," Nathan Lemphers, a senior oil sands analyst at the Canada-based conservationist group Pembina Institute, said in an interview. "Now that we're faced with a development opportunity that ostensibly runs against that sort of image, there's this dissonance."

Honestly discussing the risks and benefits of projects such as Keystone XL, Lemphers added, "enables policymakers and the media to have a more grounded conversation on Canada that's not wrapped up in these stereotypes or ideals."